Fund Support for Debt- and Debt-Service-Reduction Operations

Policy Papers, March 16, 2021

Source details

The note concludes that the Fund could support a member’s use of buybacks, cash sweeteners, or collateral in the context of a Fund-supported program, provided that:
- (i) debt restructurings using buybacks, cash sweeteners or collateral offer significant efficiency gains relative to debt restructurings that do not rely on such instruments, but are underpinned by a regular Fund-supported program; and
- (ii) an adequate cushion of non-multilateral debt remains after the operation.
The conditions under which buybacks, cash sweeteners or collateral can be expected to deliver significant efficiency gains are narrow and specified in some detail.

Buybacks, cash sweeteners, or collateral may be supported by the Fund only if they deliver significant efficiency gains compared with traditional restructurings.
Efficiency gains must be demonstrable relative to debt restructurings that do not rely on these instruments but are supported by a regular Fund program.
An adequate cushion of non-multilateral debt must remain after the operation.

Fund support is conditional and limited to cases meeting both the efficiency-gain and post-operation cushion requirements.
The note specifies narrow and detailed conditions under which buybacks, cash sweeteners or collateral are likely to be efficient.

Subject: Asset and liability management; Currencies; Debt reduction; Debt relief; Debt restructuring; Debt service; External debt; Financial crises; Money
Keywords: cash payment; Currencies; DDSR Policy; DDSRO operation; Debt reduction; Debt relief; Debt restructuring; Debt service; debtor country; fund staff; Fund-financed DDSROs; Fund-financing of buyback; Fund-supported DDSROs; PP; Sub-Saharan Africa